The Board discussed:
- proposed amendments to the measurement guidance in IAS 37 Provisions, Contingent Liabilities and Contingent Assets;
- proposed amendments to IFRS 3 Business Combinations and IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds required by proposed amendments to IAS 37; and
- whether the standard that replaces IAS 37 should be a revised IAS 37 or an IFRS.
The Board discussed proposed guidance on measuring obligations-such as asset retirement obligations-that an entity fulfils by carrying out a service at a future date.
The Board decided tentatively that the future outflow used to estimate the obligation should be the amount the entity would rationally pay a contractor at the future date to carry out the service on its behalf:
- if a market exists for such services, the amount is the price that a contractor would charge; and
- if no market exists, the entity must estimate that amount.
The Board directed the staff to develop guidance explaining how, in the absence of a market, an entity would use a 'building block' approach to estimate the amount it would rationally pay a contractor to carry out the service.
Consequential amendments to IFRS 3
The Board discussed amendments to IFRS 3 requirements for contingent liabilities.
Regarding recognition, the Board decided tentatively:
- to preserve the existing recognition requirements for contingent liabilities by replacing paragraphs 22 and 23 of IFRS 3 with a requirement for entities to recognise a liability within the scope of IAS 37 if its fair value can be measured reliably; and
- to clarify that, except in extremely rare cases, an entity will be able to determine a reliable measure of the fair value of such liabilities.
Regarding subsequent measurement, the Board decided tentatively to delete the special requirements in IFRS 3 for contingent liabilities. Without these special requirements, all liabilities within the scope of IAS 37 and assumed in a business combination would be measured after the acquisition in accordance with IAS 37.
Regarding disclosures the Board decided tentatively:
- to preserve the substance of the disclosure requirements for contingent liabilities assumed in business combinations in the period (ie those in paragraph B64(j) of IFRS 3);
- to do so by continuing to cross-refer to the disclosure requirements in IAS 37; and
- to apply the requirements to all liabilities and 'possible obligations' within the scope of the revised IAS 37.
- to delete the existing requirement in paragraph B67(c) of IFRS 3 for entities to disclose additional information about recognised contingent liabilities. The requirement will no longer be needed when IAS 37 has been amended.
Consequential amendments to IFRIC 5
Paragraph 9 of IFRIC 5 contains a requirement for contributors to measure rights to reimbursement from decommissioning funds at the lower of:
- the amount of the decommissioning obligation recognised; and
- the contributor's share of the fair value of the net assets of the fund attributable to contributors.
The Board decided tentatively to delete that requirement. Instead, if a contributor does not have control, joint control or significant influence over a decommissioning fund, it should recognise and measure a right to receive reimbursement for recognised liabilities in accordance with IAS 37.
The Board also decided tentatively to amend the requirements for obligations to make additional contributions to a decommissioning fund by:
- allowing for the possibility that some of these obligations are financial liabilities within the scope of IAS 32 and IAS 39 rather than IAS 37; and
- deleting the 'probability recognition' criterion, ie the criterion that requires an entity to recognise an obligation only if it is probable that the entity will make additional contributions.
Format of new standard
The Board decided tentatively to replace IAS 37 with an IFRS, rather than with an amended IAS 37.
The Board will next consider whether, and in what way, it should re-expose the revised proposals for comment.